Estate and Gift Tax—Are You Prepared for Changes?

The IRS recently announced new limits for estate and gift tax exemptions. The exemption for estate and gift tax increases per individual from the 2020 amount of $11.58 million to $11.7 million in 2021. For high-net-worth individuals, the estate and gift tax exemption increase is an essential element of estate planning. Shielding $11.7 million (or $23.4 for a married couple) can significantly reduce the estate tax burden for heirs.

Maryland Estate Planning Attorney

However, 2020 may have a significant impact on whether your current estate tax plan will be effective in 2021 and beyond. The federal government spent trillions of dollars battling the economic impact from COVID-19. The government might likely need to pass additional stimulus packages to help Americans and businesses. An economic jumpstart in 2021 may necessitate increased taxes and changes in the tax code.

Furthermore, the 2020 election could have a substantial impact on the tax code. If Democrats win control of the Senate and Joe Biden is elected president, the estate and gift tax exemption could change drastically. The Democrats have stated they want to lower the estate and gift tax exemptions.

Exemption amounts could return to amounts closer to those in 2009. The estate tax exemption in 2009 was $3.5 million per person. The gift tax in 2009 was $1 million with a top rate of 45 percent.

Is there anything you can do right now to prepare for potential estate and gift tax exemption changes?

Revising Your Current Estate Plan

The IRS announced that it would not claw back lifetime gifts if the exemption changes. Therefore, individuals may want to consider using their exemptions now to make substantial gifts before the end of 2020.

For individuals with children, utilizing trusts for gifting might be preferable to gifting large sums to children, even adult children. Parents might want to consider using a Dynasty Trust to allow the assets to pass to future generations free from estate taxes using the generation-skipping transfer tax exemption.

Another option could include setting up a Limited Liability Company or Family Trust. Spouses may create a SLAT (Spousal Lifetime Access Trust) that can continue as a Dynasty Trust after the beneficiary spouse’s death.

Maryland Estate Planning Attorney

Everyone’s situation is different, and each family has unique needs to address. There are many ways to utilize the estate and gift tax exemption to your advantage. There are also numerous techniques high-net-worth individuals can use as part of their estate plan to reduce or eliminate estate and gift taxes.

The key is to review your estate plan immediately to determine whether you need to make changes based on the assumption you could lose millions of dollars in exemptions should COVID-19 require lawmakers to change the exemptions to offset federal spending or the election favors the Democrats.

Take Action Now to Protect Your Family’s Legacy

Individuals need to change their estate and gift plans before 2021. Any changes to the estate and gift tax after 2020 could be retroactive with an effective date of January 1, 2021.

If you have questions or concerns, consult an estate professional immediately. It would be best if you acted now to protect your assets for future generations.

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River

A former attorney, River now provides SEO consultation, writes content, and designs websites for attorneys, business owners, and digital nomad influencers. He is constantly in search of the world’s best taco.

http://www.thepageonelawyer.com
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